Uniqueness, stability and comparative statics for two-person Bayesian games with strategic substitutes

Abstract

This paper considers a class of two-player symmetric games of incomplete information with strategic substitutes. First, we provide sufficient conditions under which there is either a unique equilibrium which is stable (in the sense of best-reply dynamics) and symmetric or a unique (up to permutations) asymmetric equilibrium that is stable (together with an unstable symmetric equilibrium). Thus, (i) there is always a unique stable equilibrium, (ii) it is either symmetric or asymmetric, and hence, (iii) a very simple local condition—stability of the symmetric equilibrium (i.e., the slope of the best-response function at the symmetric equilibrium)—identifies which case applies. Using this, we provide a very simple sufficient condition on primitives for when the unique stable equilibrium is asymmetric (and similarly for when it is symmetric). Finally, we show that the conditions guaranteeing the uniqueness described above also yield novel comparative statics results for this class of games.